Comparative Studies of the Private Rented Sector in Europe

Transcription

1 Comparative Studies of the Private Rented Sector in Europe Christine Whitehead LSE and CCHPR University of Cambridge City Future Research Centre University of New South Wales August 29 th 2012

2 Two Research Projects The UK private rented sector lessons from abroad starting from the UK policy makers view that institutional investment is the only way to generate a sustainable private rented sector The role of regulation in the private rented sector a comparative study starting from the Danish government s view that deregulation is necessary to ensure sustainability Both wrong! as are most other starting points.

3 Project 1: Lessons from Abroad A series of seminars in 2011 looking at issues in the UK, experience in other countries and what might be transferred Covering Western Europe, Australia and the USA Bringing together academics and professionals Policy environment (i) should the private rented sector be incentivised to offset the decline in owner-occupation; (ii) does this imply institutional investment rather than debt based individual investment through Buy to Let mortgages; (iii) should the emphasis be on build to let filling the supply gap.

4 Background The private rented sector (PRS) now accounts for 17% of English housing stock, growing faster than other countries Issue not really size but sustainability and stability and meeting the range of demands Growth of PRS has reflected decline in owner-occupation; social renting at best stable Push factors dominate: private renting second or third choice for many tenants and some landlords there by default Pull factors more obvious in other countries: government support but also ease of access, flexibility, and portfolio and risk management for both landlords and tenants

5 What are the UK s problems in light of experience abroad? Sector growing but rents still rising Quality has increased but uneven and lack of professionalism in management Little new build for buy to let Fragmented ownership of multi-family apartment blocks Limited security of tenure even for households that want long-term homes (although long term leases possible not attractive to either side?)

6 Learning from abroad: correcting some assumptions 1. Institutional investment does not dominate private rented sectors in other countries. 2. Regulation is not inherently associated with smaller poorly operating private rented sectors. 3. Private renting is not just for the young and mobile but can be a tenure of choice for older, better off, more stable households 4. Private renting is not inherently unsuitable for more vulnerable households 5. Bigger does not always equal better.

7 Percentage of PRS dwellings owned by various types of landlord Source: Scanlon and Kochan (2011) Towards a sustainable private rented sector: The lessons from other countries, LSE London, Table 3. Individuals Institutional landlords Other Australia most very few Austria very few most (municipal bodies, corporations) Belgium Denmark 8 10 >50 professional landlords Finland France Germany (including cooperatives) Netherlands (including renting from family) Norway Republic of Ireland most very few Spain state-owned bodies Sweden very few most (including personal companies) Switzerland UK USA (including REITs) 9 (including cooperatives)

8 Learning from abroad: positive lessons 1. Funding: private renting needs a range of investors. 2. Regulation: well defined and stable but also strong frameworks not incompatible with large, stable sectors. 3. Private renting can suit families and older households, not just the young/mobile. Longterm secure leases may help.

9 Learning from abroad: positive lessons (2) 4. Making private renting work for low-income households usually requires generous incomerelated benefits and well defined government licenses. 5. New supply depends on investors, built form and ownership structures. Many countries only allow single ownership of apartment blocks which helps company and institutional investors and REITS. 6. In eg USA and Australia, private landlords get tax breaks for providing social housing could it work in the UK?

10 Learning from abroad: positive lessons (3) 7. Many countries offer more generous tax treatment for landlords e.g. rental losses offset against other income. But any incentives must fit the UK tax system. 8. Demographics, income distribution and the labour market forces all point to increased demand in the UK. If supply is to increase as well, investors need reasonable and predictable rates of return ideally total returns on private rental investment should be more like a utility than a casino. 9. Scale reflects policy decisions about all tenures as well as returns on other investments, financial markets and cultural norms.

11 Goals of institutional investors for residential property: all countries (1 = most important, 5 = least important) Source: Montezuma, J. (2006). A survey of institutional investors attitudes and perceptions of residential property: the Swiss, Dutch and Swedish cases, Housing Studies, 21(6):

12 Learning from abroad: positive lessons (4) 10. No country has everything right. But those with larger, well operating private rented sectors tend to be prosperous, with generous income support, little social renting and neutral or favourable tax treatment also stable or declining demands for housing Exemplar: Germany. Others with large private rented sectors but also housing market volatility and uneven income distributions show considerable signs of stress. Exemplars: USA, Australia and UK?

13 Project 2: Comparative Regulation and Size of the Private Rented Sector Case studies of eleven European countries clarifying how regulation had changed over the last thirty years and how regulation relates to the scale of private rental provision Also, provided further evidence on many of the findings in the other project Coverage up to 80% of the European market Starting in early 1980s Examining three types of countries (i) with mainly stable regulatory systems: Germany, Switzerland, Sweden, Netherlands?, Denmark? (ii) with increasing regulation, mainly in context of security of tenure - Ireland, France (iii) with declining regulation - England, Finland, Norway, Spain Within each group considerable variation but PRS across Europe/types of regulation generally declining

14 The changing scale of private renting Country Early 1980s Early 1990s Early 2000s Denmark (1980) (1990) (2004) England (1981) (1991) (2000) Finland (1990) 16 (1970) (2000) Current (estimate)* 14 (2011) 17 (2010) 16 (2009) Current trend Declining Data source: Lunde 2010; Danmarks Statistikbanken Table BOL 101 Growing DCLG Live Tables: Table 1041: Dwelling Stock by Tenure, England Stable Lyytikainen 2006; for 1990, Oxley 1995; for 2009, Statistics Finland 2010 France (1992) Stable INSEE Housing Survey 2007, cited in Haffner et al (1984) Germany 45 (1982) (2002) 48 (1993) 48 (2002) (2006) 49 (2006) Stable Van der Heijden et al and Kirchner 2006, cited in Haffner et al Ireland (2004) 10* (2009) Volatile For 2004, OECD Economic Surveys, other years Scanlon & Kochan 2011 Netherlands Declining Scanlon & Kochan 2011 Norway * Stable Scanlon & Kochan 2011 Spain 21 (1981) Sweden 21 (1980) 16 (1990) (2001) 20 (1990) 22 (2002) around 7-8* Declining Oxley et al. 1995; Hoekstra et al (2009) Stable Turner 1996 for ; Norris & Shields 2004 for 2002; Andrews et al for 2009 Switzerland Declining Swiss Federal Statistics Department (2000)

15 Changing Regulatory Frameworks Post-war mainly 1 st generation rent controls with strong security (but often a great deal of avoidance and evasion affecting those who were not established tenants) Some signs of change in 1950s/60s and 70s but politically difficult By the 1980s some systems had already experienced some deregulation and restructuring while others were moving from 1 st to 2 nd generation rent control (initial market determination but controlled increases).

16 How regulation has changed

17 How the size of the sector has changed

18 The relationship between changing regulation and changing scale

19 Project 2: Findings Deregulation has not generally been related to an increase in the scale of provision only exception is England; Partial deregulation in particular has often had little impact on size eg: Netherlands, Denmark deregulation by date of letting/building in early 1990s generated little interest; Strong regulation is sometimes related to larger and more stable sectors but by no means always and is the regulation the main reason for stability? 2 nd generation rent control and regulation on security of tenure (indefinite tenancy) has worked well particularly in Germany and Switzerland which have sustained the role of the PRS to accommodate more middle-income families who cannot afford owner-occupation in high cost areas

20 Project 2: Conclusions Regulation is only one factor affecting the role of the PRS; Other important determinants include: tax benefits to landlords; housing assistance to private tenants; subsidy to developers for the provision of new private rented dwellings; refurbishment subsidies and tax breaks to landlords for housing renovation etc; Important whether the sector accommodates lower income households - role of the social rented sector and income related housing assistance; Just deregulating is not enough to generate change and adjustment may anyway take decades Some interest across countries in strengthening security but linked to secure income for landlords through well defined 2 nd generation rent controls but also some interest in re-introducing rent regulation on capital cities London, Paris, others? But stability of regulation a pre-requisite for investment?

21 Where Next in the UK? Main requirement at the present time is to get the housing market moving again Across Europe output levels are heavily down and there is little sign of recovery In the UK perhaps 1.5 million households that would have been owner-occupiers are either in the PRS or living with family Emphasis is on matching assistance to new build

22 Pre the Montague Report Growth of Buy to Let mortgages and with some associated growth in two bed flats until 2008 Long history of initiatives to involve institutional investors but Treasury anti-tax breaks in the property sector In the last few years large scale initiative in London with public support and land completely unsuccessful More fundamental concerns about the risks associated with property ownership And concerns about the growth in Housing Benefit payments/fraud (perhaps 40% of PRS tenants eligible for Local Housing Allowance).

23 The Montague Report Emphasis on generating additional supply the build to let market Key role for local authorities in supporting expansion of PRS (at expense of s106 affordable housing? Argues that fundamentals are strong; growing demand; rents good match to pension fund liabilities; potential for diversification; adequate yields; stable regulatory environment (no increased rent regulation/security)

24 Recommendations Substitute time limited (10 plus years) PRS development for S106 affordable housing (comparisons with Germany; Australia) Identify public land sites for PRS development as earlier GLA schemes Targeted incentives to provide demonstration projects and seed funds (and possibly guarantees) A dedicated Task Force to support and inform expansion Clarity over tenants rights (but not a kite mark)

25 Will It Work? Some fundamentals correct institutions do have good reasons to invest if the total returns are adequate But why didn t the GLA demonstration projects work? Does planning have the power to support tenure specific arrangements? Can the legal system enforce single ownership for apartment blocks? How secure is the income stream given the dependence on LHA? How generous will government have to be? And owner-occupation is still cheaper if you can get a mortgage and cope with the risks

26 Overall Conclusions There is a role for institutional investors but never likely to dominate; Some lessons learned from earlier experiences and greater benefits to investors post crisis? Treasury unlikely to be generous - so depends on local authorities and public land; issues of competition with HAs and social housing; Time limited provision has been on the cards for years but big issues of planning and rights to purchase; Potential for integrating the private and social sectors more effectively especially through social sector capital assets and borrowing capacity; Stable regulatory frameworks can help support the sector and be acceptable to investors but only if total returns are adequate and risk is managed. Longer term choices and opportunities depend on how the whole housing system develops not on a particular initiative.